The Foundation of a Successful Retailer in the Difficult Business Environment - Research Paper Example

Introduction Today’s companies which provide services must consider issues of how best to position a product to ensure higher sales volumes and increased consumer patronage. In service marketing, businesses need to create strategic marketing practices which provide positive viewpoints of the service as well as getting the service to the right market environment or customer. Issues of brand recognition, brand-building and, in with the right service marketing strategy, build brand preference within the firm’s desired target market. In the retail sector, especially in areas of youth clothing and apparel, competition is enormously high for those which operate in the domestic UK environment and those businesses which have expanded their service marketing reach across the globe. Depending on consumer preferences and lifestyle, the retail industry maintains several complications in developing an appropriate service marketing strategy and making a particular service stand out amongst competitors. This paper highlights the competitive structure of the upscale, youth clothing industry in the retail sector and highlights the various opportunities and threats to this industry based on strategy and competitive service marketing. The paper also identifies a brief five-year summary of a major player in this retail environment based on current business and marketing strategies. The upscale clothing sector It seems that youths are increasingly demanding more top quality clothing than ever before, which is creating a wide variety of domestic and international apparel chains which cater to the youth lifestyle and demand for upscale fashion. The upscale clothing industry is categorized by major players such as Abercrombie & Fitch (which recently opened a massive flagship store in the London shopping district) and several other retailers which cater to youth demand for exclusivity, beauty and a price tag which justifies the upscale purchase. With this idea in mind, companies in the upscale, youth retail sector must consider the four Ps of marketing (product, place, promotion and pricing) as well as the people and processes to deliver a quality service. This retail sector is categorised by a changing youth demographic which currently appears to have a higher disposable income and is applying this income to upscale fashions and accessory purchases. When youth consumers are drawn toward companies which operate in this market sector, they are drawn to the lifestyle connection which is created through various positioning strategies. For instance, Abercrombie & Fitch (as one example) utilises high profile celebrities, beautiful and youthful staff members with better-than-average physical attributes, and the firm distributes full colour catalogues which depict attractive youths in a variety of sensual or somewhat-seductive marketing. The company genuinely promotes having an attitude of superiority and exclusivity which starts at the upper level of management and trickles down to the subordinate staff. Thus, at the time of service delivery, the generic salesperson appeals to the youth dimensions of beauty and upscale fashion through relationship-building exercises and service marketing with a focus around price and lifestyle. This retail sector can also be recognised by the high sales volumes which many of the key players experience today. Abercrombie & Fitch experienced an increase in sales volume from £165 million in 1994 to £1.05 billion by 1999 (Perman, 2000). These sales are expected to continue climbing and can be witnessed in the company’s 2007 annual report. All of these high sales figures can be attributed to successful service marketing and a focus on the seven Ps of marketing. Most important in service marketing for this industry is process, which describes the internal systems and policies in place which serve to deliver the final, quality service experience. Duncker (2009) offers that experience consistency is one of the major elements which continue to lure customers back to this particular retail marketplace. This is a competitive reality for businesses which operate in this market sector due to the fact that marketers continue to attempt to appeal to youth lifestyle and fashion-conscious attitudes to deliver service in a method which remains consistent through the years. Youths looking for upscale clothing which makes a statement toward their individual identities creates the necessity to hire salespersons who function less as sales associates and more as exclusive friends in an exclusive environment. The companies which operate in this market sector cannot allow the internal sales experience to deviate from these consumer perceptions without running the risk of business failure or sales decline due to inconsistent marketing and logo presentation. By and large, this retail sector is highly competitive with more and more upscale, youth-oriented clothiers being established internationally. It seems that retailers now understand that youths are a highly-profitable market and can justify a higher pricing model simply because the clothing products carry a designer name. Few could argue with this service marketing logic as this industry is witnessing growth by focusing on product and youth lifestyle and doing this in a fashion which delights the youth buyer. Companies in this industry give youths the perception of social superiority and, in the process of focusing on satisfying lifestyle, builds higher sales volumes and creates more opportunities for growth and profitability. Threats and opportunities This particular market segment maintains many threats. Porter’s Five Forces analysis, which assesses the external business environment to look for any potential threats to successful marketing, is vital to service marketing in this environment. This model recognises threats from new entrants as well as the various buying power and competitive power of potential competitors. One threat identified through Five Forces was the potential for new market entrants, which is a reality in this market environment. As more and more companies witness the explosive profit gains and growth experienced by other upscale, youth-oriented clothiers, competition is a fairly routine strategic reality in this environment. Identifying new market entrants, however, is less important than creating a quality service marketing strategy and implementing it with staff which remains unified toward the company marketing goal or vision. Thus, it can be said that staffing remains an issue in service marketing and finding the appropriate worker who shares the company’s vision (as well as the customers’) and can deliver superior service through relationship-building and focus on product. For example, many companies which operate in this market sector continuously rely on the brand name and the logo presentation to build consumer connection. However, those companies in this sector which are experiencing the highest volume of profit and growth do not appear to rely on these traditional factors of service marketing and, instead, are more progressive in marketing delivery. In the United States, for one example, lower-end retailers such as The Gap have been able to justify higher pricing models on most of the firm’s consumer merchandise because of proper positioning strategies and the use of service marketing concepts. Using similar youths in a variety of seductive situations (catalogues, print and air marketing literature), even lower-end retailers have begun to climb into the echelon of upscale youth fashion by positioning the product as upscale when, in reality, it is not. This would not seem to be an easy task in today’s complicated and highly competitive business environment however it appears to be the largest opportunity for youth-oriented clothiers. Traditional service marketing, which focuses on the pricing (how much is the buyer willing to pay) and people (as two examples) are not as effective as a more strategic and risky marketing practice by creating consumer perceptions about a product which is clearly not upscale or is not justified by the high price tag set at the retailer. Today’s opportunities in service marketing focus much more strongly around the use of endorsements and clever use of logo design and implementation. Sponsorships, also, as part of a more traditional service marketing design are not very common in this market segment which is likely an after-effect of the demand for exclusivity. When youths are purchasing products, it is not common to find one brand teaming up with another as a means to build competitive advantage. Rather, the rivalry between competitors in this market sector appears to be created with the sole means of under-cutting others in the same market environment. In this sector it would seem that competitors are proud of their individual brands and work quite hard to ensure that each business remains so highly differentiated from competitors that they are easily identified not for their business similarities but differences from competition. Physical evidence, also as part of the service marketing model, is highly crucial as a business opportunity in this market sector for all key players. Youths, when entering these bricks-and-mortar retail stores, expect to find similar-looking youths and high-priced merchandise which speaks proudly of their affiliation with the company. This is also consistency in service delivery which is common in this market sector at most key players. Duncker (2009) again suggests that the physical décor of the business as well as its location is extremely important to making a positive imprint on buying customers. This is widely-evident for companies such as The Gap and Abercrombie & Fitch which maintain rather ornate and expensive internal sales floor presentation and building architecture. As part of the entire service marketing model, upscale and exclusivity (as consumer lifestyle demands) are reflected in all physical evidence provided by all companies operating in this market sector. This rather grand presentation of the business can also be considered a threat to any competitor risk model in the current marketing environment. Not every business which provides upscale fashions to the youth buyer maintains the profit or purchasing power to establish grandiose internal sales environments or cannot procure the top-quality merchandise demanded by youths in this buying segment. This is where smaller, yet highly-focused companies must rely on other elements of the service marketing model, such as clever on-air advertising, to lure customers into their sales environments. Public relations, also, is a significant opportunity for all businesses which operate in this sales environment. Cuneo (1999) provides how Abercrombie & Fitch was able to expand their profitability in just a single year by using a spotlight in Vanity Fair magazine and the start of an aggressive television marketing campaign. Companies like Abercrombie & Fitch invest a significant volume of their operating budgets on service marketing (Annual Report, 2007). This is a part of process in the seven Ps as well as promotion as high-dollar advertising, both in print and media, which really make the brand stand out and reach a wider variety of potential customers. Larger companies utilise press releases and public relations opportunities on a regular basis, which is likely why many companies operating in this youth clothing market have experienced profitability increases which allowed firms to expand internationally. It is also this stern focus on getting involved in the media and using strategic catalogue releases to deliver the entire service marketing concept built on exclusive fashion and youth-focus. Abercrombie & Fitch uses public relations on a regular basis to build higher customer volume and brand preference in the company’s target audience. So much publicity, in fact, that it has created outcry from special interest groups for their use of what is considered to be soft pornography in the company’s marketing publications (Smith, 2005). However, the outcry against the fashion companies in this market are generally from parents or religious groups which feel that the service marketing model at these companies is inappropriate and even degrading to youths. Companies like Abercrombie & Fitch appear to actually rejoice in what might be considered negative publicity and openly state that the company is only for specific youths and should remain exclusive to these buyers. Through seductive print advertising and a heavy focus on promotion, these firms ride the proverbial waves of profitability and generate much more public exposure in the process. By angering certain special interest groups through regular business practices and service marketing concept, some firms in this selling environment appear to make a better name for themselves with their target consumers: The youth-oriented fashion buyer. Part of the service marketing model in this environment, also, deals with support networks and the external investor, who also contribute to the companies’ profitability. Song, Adams and Rhee (2007) offer that the construction of a deep support network for retail investors provides competitive advantage for a firm by delighting investors and allowing them to make their own judgments and be empowered about investment decisions into companies in this market sector. These types of networks are provided by retailers in this sector which routinely advertise press releases and quarterly financial information, describing the internal and external service marketing plan, and then allowing investors to make their own determinations about whether the company is succeeding strategically or requires adjustment to build profitability. These companies in this sector appear to listen to investors and incorporate them into the entire service marketing concept and model, giving firms which treat investors as important elements of the business a higher competitive advantage and long-term strategic importance. Surprisingly, despite the innovative and youth-oriented lifestyle positioning occurring in this market sector, there is another threat which is a product of the current economic environment across the globe: Low-end retailer competition eroding potential profitability. Large mass-retailers such as Wal-Mart, which provides low-end clothing at extremely affordable prices, is adopting the same logo presentation and witty statements on Wal-Mart clothing in an attempt to lure budget-conscious consumers out of stores like The Gap and into Wal-Mart. Fox and Sethuraman (2005) offers that Wal-Mart serves the growing consumer demand for value and price-conscious shopping, which is becoming a necessity for certain youth market groups due to lack of jobs in the current credit and economic crisis. Wal-Mart’s entire marketing strategy is based on cost-consciousness and value and the firm appears to be taking this to a new level by appealing to the fashion-minded buyer with illustrations of youths wearing a variety of low-end merchandise and, simply, having a good time doing this. This is the youth-focused connection and positioning as both a value and quality retailer, which continues to increase Wal-Mart’s general merchandise profitability each year. In order to combat competitor tactics like Wal-Mart, the future requires creativity and ingenuity (if not an assortment of value-conscious fashion items to be kept in stock) in order to remain a leader in upscale youth fashion and accessories. However, it appears to be the commonalities which exist among most competitors in this market sector which make them able to prevent companies like Wal-Mart from eroding profitability by a significant margin. Even though Wal-Mart remains focused on mass-targeting strategies for a wide variety of customers, companies like Abercrombie & Fitch and The Gap remain devoted to their niche markets with a strong focus toward this youth group. Nearly 100 percent of all marketing literature is targeted toward the groups which are most likely to find connection with Abercrombie & Fitch or The Gap’s attitudes and presence, unlike Wal-Mart which could not possibly hope to segment or differentiate products in this fashion as a mass-market retailer. This is another element of quality competitive advantage which exists at these firms because they can remain focused on a particular group of buyers and create literature which is solely designed to fulfil their service marketing needs and preferences. Wal-Mart, simply due to its sheer size and enormity of product selection, could not devote internal resources to niche targeting strategies, giving Abercrombie & Fitch and The Gap a better strategic edge simply by fulfilling their unique marketing strategies and service delivery. A focus on Abercrombie & Fitch Abercrombie & Fitch maintains difficulties with its current service marketing model over the next five years. Current economic conditions are slowly eroding disposable finances from youth markets who are unable to land quality jobs or are being forced to frequent lower-end retailers to satisfy budget restrictions. However, through this difficulty remains an opportunity which is suited for the firm’s long-term goal of creating connection with youths demanding exclusivity. Plunkett (2003) offers that the firm once provided clothing for Theodore Roosevelt, Ernest Hemingway, Charles Lindbergh and Richard Byrd (the arctic explorer). This company has a rich history of servicing famous individuals and the company should capitalise on this more. It has already been established that youths in this market sector are drawn toward perceptions of superiority and exclusivity. Using celebrity endorsements and clever marketing literature which focuses on the historical aspects of the business’ history will serve to build this stronger youth connection. Using various merchandise such as Hemingway loved this too! or other marketing opportunities would not only provide superior public relations efforts but boost youth connection with exclusive and celebrity-minded advertisements and promotions. This might also lure a different consumer segment to the business and ensure higher profits in the process. Jones (2002) offers that Abercrombie & Fitch actually enjoys the controversy which is created each time the firm markets its seductive, youth-oriented catalogues and other print advertisements as the author identifies that this is exactly what youth buyers are looking for. In many respects, the existing service marketing model with a focus on product, people, processes and physical evidence creates the social controversy which builds higher visibility for the firm and only serves to feed the attitude requirements of the buying market segment. From a long-term strategic perspective, Abercrombie & Fitch has a solid service marketing concept which relies on routine PR and the firm has found success through its reliance on both positive and negative consumer sentiment. The largest risk, long-term, to Abercrombie & Fitch would be a change in buyer behaviours which turn them toward another competitor brand or into a lower-end retail environment through the duration of the current economic crisis being felt around the world. However, this risk appears to be continuously-assessed at Abercrombie & Fitch as the company regularly re-invents itself with new products, new logos, new catalogues and innovative service marketing with a focus on positioning and consumer relationship-building. It seems that the staff is content to be employed with a company focused on exclusivity, desired target customers are drawn toward this environment, and profit objectives are being met in the process. By almost any measure, Abercrombie & Fitch is a success in the upscale, youth-oriented fashion marketplace because the firm legitimately understands what drives its customers through the doors of the business. Conclusion It is quite clear that companies which operate in the youth-oriented marketplace are keenly aware of the need to focus on the seven Ps of service marketing. Even more so, these retailers remain focused on product through creative logo presentation and carrying new merchandise with an attitude befitting the desired buying segment. The firms rely on in-store presentation and architecture, as the focus of physical evidence, which serves the consumer demand for exclusive products in an exclusive, upscale sales environment. The commonalities of all retailers in this market sector are heavy concentrations of promotion coupled with public relations to create an external consumer image of superior fashions and accessories. There is much less focus on the specific products carried (such as identifying various brand names) but more emphasis is placed on relationships and using the company’s own brands to influence buying behaviours. If comparing the existing market players to theoretical service marketing models, the identified key players in this particular youth retail marketplace are top-notch and their sales increases reflect their strong dedication to successful service marketing. Despite any threats to the business, it seems there are more opportunities for success by changing focus, when necessary, to meet consumer demands and buying preferences. The businesses in this sector are regularly assessing external, competitive threats and examining whether people, processes, or physical evidence should be altered in order to remain a strategic sales leader. Pricing, it seems, is not so much an issue with Abercrombie & Fitch as the company generally justifies a higher product price tag simply because the company’s brand name is proudly attached to the retail garment. This is not accomplished without vision, ingenuity and a strong focus on delivering a superior customer service and using marketing to make a sizeable consumer impact. Companies like The Gap and Abercrombie & Fitch, among others in this sector, are effective at using internal and external resources to satisfy targeted customers. They deliver superior service through in-store staff representation (young and seductive), provide a quality product which speaks to consumer needs, and uses the public relations machine to build a strong public image and, even in small degrees, international controversy. This appears to be the foundation of a successful retailer in this difficult business environment. Bibliography Annual Report. 2007. ‘Abercrombie & Fitch Annual Report’. http://library.corporate- ir.net/library/61/617/61701/items/295294/Final_AF_07ANNUAL_REPORT.pdf. (accessed January 5, 2009). Cuneo, Alice Z. 1999. ‘Abercrombie & Fitch takes its ads to TV’. 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Song, J.H., Adams, C.R. and Rhee, Y. 2007. ‘Developing an effective deep support network for individual investors’. Journal of Financial Services Marketing, London. 12(3), p.208-219. Read More